The Fourth District Court of Appeal said evidence of failing to file was sufficient for felony charges, reasoning that the failure to act was tantamount to the intent to evade taxes. The panel rejected arguments to interpret state tax law under federal tax laws, which require proof of affirmative acts of tax evasion, and pointed out the difference.

"That is, Internal Revenue Code section 7201 makes it a crime to attempt to evade a tax, while section 19706 makes it a crime to willfully fail to timely file a tax return," said Justice Eileen C. Moore in the majority decision.

Timely Filing Was the Difference

Justice Richard M. Aronson concurred that the state tax code makes it a crime to file untimely tax returns, regardless of affirmative acts of intent.

"Our Legislature in enacting section 19706 did not use the word 'attempt' or any similar language," he said. "In my view, that makes all the difference ..."

In dissent, Justice Richard D. Fybel said federal and state tax laws mirrored each other in criminalizing tax evasion. He said the felony charges should be dismissed against the defendant because prosecutors did not show he had an intent to evade taxes.

"Revenue and Taxation Code section 19706 punishes a willful failure to file a tax return only when coupled with the intent to evade paying a tax," Fybel said.

Three Years and Five Figures Short

In the Orange County case, Blake Hudson was charged with three counts of felony tax evasion based on evidence he owed taxes of $21,974, $27,205, and $6,505 in three consecutive years respectively. He did not file taxes in each of those years, despite numerous demands by the Franchise Tax Board.

In his petition to stop the proceedings against him, Hudson argued that the prosecution needed to show an additional affirmative act of fraud. The appeals court, in dismissing his petition, disagreed.

"Hudson's willful failure to timely file tax returns was the sole actus reus required to be shown under section 19706," the majority said and ordered the case back to trial.

The dissent said that if the prosecution could not show intent to evade paying a tax, the defendant might still be guilty of the misdemeanor offense or subject to a civil penalty.